BEIJING -- Chinese video streaming service provider iQiyi has formed a strategic partnership with Malaysian satellite television operator Astro to launch its business outside China for the first time.
The alliance enables iQiyi to lure customers in Malaysia through Astro's media and marketing network. Astro, for its part, can utilize the operating capacity of iQiyi, which has more than 100 million paying subscribers in China, through its technology and content platform.
Original content by iQiyi is already available on Astro. Unlike other Chinese video streaming services which have gone abroad through package or copyright sales, iQiyi offers content via Astro's platform.
In addition to a channel on Astro, an overseas version of iQiyi's app is available on app stores outside China. This means that iQiyi will be the first Chinese video streaming service provider to make real steps in an overseas market.
The decision by iQiyi to head overseas is not an easy one, even at a time when most of its internet services peers are considering making similar moves.
The company has made steady capital expenditure over 14 years to grow its subscriber base, with Chinese consumers taking a long time to accept the idea of paying for video streaming services.
Nevertheless, the decision to expand abroad is timely. As 80% of iQiyi's subscribers are in first-tier cities, such as Beijing and Shanghai, and second-tier ones, there is a lot of room for growth in smaller cities. But it is by no means easy to make headway in such markets.
Rival video streaming websites Youku and Tencent Video are doing the same as iQiyi, with fierce competition between the three to win subscribers to multiple internet services, produce original dramas and purchase copyright. As users pay for content rather than for access to platforms, service providers tend to lose customers and fall behind the competition if they reduce their content output.
In September, iQiyi, Youku and Tencent respectively had 244 million, 206 million and 131 million monthly active users, according to research company Trustdata. With competition intense, the video streaming sites are striving to find new growth areas.
Beyond China, Netflix, the U.S. streaming company that is regarded as a model by Chinese video streaming sites, has logged huge profits from subscriber fees in recent years. The American company had 164 million paying subscribers around the world in the third quarter of 2019, winning 6.78 million new subscribers in the July-September period, which breaks down into 517,000 in the U.S. and 6.26 million in the rest of the world.
Netflix's global growth is accelerating and Chinese video streaming service providers cannot compete. The U.S. company began its service in 1997 and took 20 years to gain 100 million paying subscribers, compared with the nine years it took iQiyi. However, unlike Netflix, iQiyi and its peers have long operated in the red.
Expanding abroad has been a hot topic for internet service providers in China over the past two years and a number of companies have begun offering services in various countries. Geographical and cultural closeness were the main factors in iQiyi's choice of Southeast Asia as its first overseas market, with many of its peers looking at the same region.
More importantly, Chinese companies are paying close attention to Southeast Asia as the penetration of content from America and elsewhere is relatively weak there. It would be more difficult for iQiyi to advance into the U.S. and Europe, which are influenced by Western culture and are strong markets for the likes of Netflix and Disney.
However, content generation is a costly business, with high appearance fees for Chinese actors and actresses and expensive drama production, according to Yang Xianghua, president of iQiyi's membership and overseas business group.
The financial reports of Chinese video streaming sites are bruised by their heavy investment in content. But nevertheless, this has served as the foundation of their overseas market advances. Bigger budgets for content have improved the quality of the finished products and increased the chances that dramas made in mainland China will appeal abroad.
In Southeast Asia, dramas produced in mainland China are becoming popular following the boom of dramas made in Hong Kong and by the territory's television broadcaster TVB, as well as those from South Korea and Taiwan.
The decision by iQiyi to enter the Southeast Asian market with its formula of "technology plus content" followed visits and consultations with many local business operators, media and TV stations.
While iQiyi's relatively higher technological level than those of Southeast Asian service providers was a reason to choose this market, a more compelling reason was a wish to create its own platform there. As American content providers like Disney and HBO have their own channels, iQiyi too needs a channel on which to widely disseminate its content.
At present, iQiyi maintains a business model of both free and fee-based services at home and abroad. In China it sought to first win users and then commercialize its service. Yang said iQiyi's overseas business model and revenue structure would follow the same pattern.
Membership fees are the largest source of revenue for iQiyi, according to its financial report. Behind the revenue structure is its slow and painstaking cultivation of paying subscribers over almost 10 years, with high hurdles for converting users from free to fee-paying viewing.
The adoption of fee-paying services for viewing videos was still low in Southeast Asia, Yang said. So, despite have broken through at home, iQiyi will need to take time to get people in the region to accept the idea of paying for content streaming.
On top of this challenge, hidden costs lurk in unfamiliar market environments for any company.
Douyin, known as TikTok outside China, has been shut out of the Indian market after a court passed a temporary ban on downloads from its video streaming site, on the grounds that children could be drawn in and access inappropriate content.
Services from Kuaishou's overseas brand Kwai have seen twists and turns ranging from a cut in staff to the departure of a top executive. Kwai currently has a strong presence in Brazil with more than 3 million daily active users.
The internet infrastructure in Southeast Asia is similar to that of China 10 years ago. Chinese internet service companies see this development potential as an important attraction for the region. But on the flip side, they will have to experience the difficult stages of rolling out services once better infrastructure is built -- and then to keep fighting off the competition.
Chinese internet service companies need to take time to establish where and how they carry out their overseas expansions. The challenge is only just beginning.
36Kr, a Chinese tech news portal founded in Beijing in 2010, has more than 150 million readers worldwide. Nikkei announced a partnership with 36Kr on May 22, 2019.
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